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In many cases in investing, boring is beautiful. This maxim certainly holds true for consumer-staples stocks. "Consumer staples" are the products that people need in their everyday lives and will frequently purchase regardless of the state of the economy.
Generally speaking, consumer-staples companies sell items like toothpaste, razors, laundry detergent, tobacco products, and the like. Here's a quick snapshot of some of the largest companies in the consumer-staples sector today:
Data source: Google Finance.
As the name suggests, consumer-staples stocks offer investors relatively consistent performance. In fact, their consistent and typically profitable operations often make these some of the most potent dividend-paying stocks on the market.
Let's take a more in-depth look at three consumer-staples names that are particularly deserving of investors' attention right now.
Procter & Gamble
It's hard to walk through a store in the U.S. and not encounter at least one brand owned by Procter & Gamble (NYSE: PG). All told, the consumer-staples titan controls around 70 brands and an astounding 22 brands that each generate annual sales of $1 billion or greater. This apparent omnipresence has helped make Procter & Gamble an incredible stock for long-term investors, particularly dividend investors. In fact, P&G has managed to increase its annual dividend payments every year for the last 59 years, a streak only matched or bested by five other companies in the U.S. The same fantastic economics that have powered its prominence as a dividend-paying stock have also enabled P&G to handily outperform the S&P 500 since at least the late 1970s.
However, over the past five years, Procter & Gamble has attempted to revive its growth engine amid a number of headwinds which have caused its shares to meaningfully underperform the market averages. The recent strength of the U.S. dollar has crimped top-line results in recent quarters. What's more, P&G has witnessed increased competition in areas like hair care and shaving products, translating to market-share losses across several important product categories. However, with its multiple structural advantages, Procter & Gamble appears well suited to overcome its more recent issues.
Much like Procter & Gamble, longtime market-beater Coca-Cola (NYSE: KO) has struggled to keep pace with the major indices in recent years, as it battles to overcome key secular headwinds facing the soft-drink industry. An increasingly robust body of research has linked regular soft-drink consumption to elevated risk for several chronic health conditions, including Type 2 diabetes and heart disease, helping to drive soda consumption in the U.S. to a 30-year low this year. Against this backdrop, Coke has seen its sales decline in three consecutive years.
The company has been working to optimize its cost structure by selling off some bottling operations, which has helped buoy profits in the face of falling sales. However, Coke will inevitably need to address the continued decline in soft-drink consumption by acquiring emerging, healthier brands. Its 2011 purchase of Honest Tea can serve as a useful model, leveraging Coca-Cola's world-class distribution system to connect new, healthier beverages to a mass-market audience.
Having increased its dividends in each of the last 53 years, Coca-Cola stock remains a fantastic option for long-term income investors. However, much as with P&G, investors need to weigh the company's long-term risks against its possible upside before purchasing.
Few activities are more universal than enjoying a cold beer after a long day's work, which bodes particularly well for shares of Anheuser-Busch InBev (NYSE: BUD). The company dominates the global brewing market, selling one in every five beers consumed worldwide. Once its merger with SABMiller closes, Anheuser-Busch InBev will control a portfolio of over 200 beer brands and account for 30% of the global beer market.
Already extremely profitable on an EBITDA (earnings before interest, taxes, depreciation and amortization) basis, the post-merger Anheuser-Busch should be able to even more effectively leverage its massive economies of scale to the benefit of its shareholders. Thanks to its majority ownership by 3G Capital -- the notoriously cost-conscious Brazilian private equity giant that has partnered with Warren Buffett in recent years -- it seems the company's dividend growth outlook remains as favorable as ever. With its shares currently yielding 3.7%, Anheuser-Busch InBev looks like an incredibly compelling consumer-staples stock today.
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Andrew Tonner has no position in any stocks mentioned. The Motley Fool recommends Anheuser-Busch InBev NV, Coca-Cola, and Procter and Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.